Outside cells of the preimplantation mouse embryo form the trophectoderm (TE), a process requiring the transcription factor Tead4. Here, we show that transcriptionally active Tead4 can induce Cdx2 and other trophoblast genes in parallel in embryonic stem cells. In embryos, the Tead4 coactivator protein Yap localizes to nuclei of outside cells, and modulation of Tead4 or Yap activity leads to changes in Cdx2 expression. In inside cells, Yap is phosphorylated and cytoplasmic, and this involves the Hippo signaling pathway component Lats. We propose that active Tead4 promotes TE development in outside cells, whereas Tead4 activity is suppressed in inside cells by cell contact- and Lats-mediated inhibition of nuclear Yap localization. Thus, differential signaling between inside and outside cell populations leads to changes in cell fate specification during TE formation.